More and more children are living with their parents when their parents begin to need supports for their care. This situation can occur either with the parent moving in with the child or the child moving in with the parent. This trend probably won’t reverse anytime soon. Children and their parents are finding that living together is a better arrangement, both financially and emotionally than moving to an institution. But living together is a big adjustment for everyone, and it is important to be prepared. Preparations can range from making physical adjustments to the house to figuring out finances. We recommend working out the financial details first. This will alleviate tension between parent and the caregiving child as well as maintain harmony with non-caregiving siblings of the caregiving child. The following are some things to think about financially when a parent begins to live with a caregiving child.
- Shared Housing Agreement. Determine how much the parent will contribute to household expenses (or how much the child will contribute if the child is moving in with the parent). Creating a written agreement relieves any ambiguity about the amount contributed by the parent or child. This maintains harmony among non-caregiving children by setting the amount of the parent’s contribution under a clear, fixed standard. It can also help with planning for Medicaid benefits by verifying that payments are for fairly compensated household expenses and not gifts to the child.
- Care Agreement. Care agreements are an increasingly popular way to ensure a caregiving child is compensated for the child’s work. A care agreement (also called a personal care contract) is a contract between a parent and a child (or other family member) in which the parent agrees to reimburse the child for caring for the parent. These agreements have many benefits. They provide a way to reward the family member doing the work. They can help alleviate tension between family members by making sure caregiving is fairly compensated. In addition, they can be a be a key part of Medicaid or VA Pension planning, helping to spend down savings and otherwise be a tool to qualify for such benefits, if necessary. It is important to understand both the benefits and shortcomings of a care agreement. Consequently, we highly recommended that agreements be drawn up with the help of a qualified elder law attorney.
- Tax Exemption. A caregiving child may be able to claim a parent as a dependent and get a tax deduction if the child provides more than half of the parent’s support during the year. This would allow the caregiving child to get an income tax exemption for the child’s parent ($4,050 for tax year 2017). We recommend consulting a tax advisor to see if claiming the parent as a dependent is applicable.
- Public Benefits Assistance. Assuming a typical full-time job consists of a 40 hour workweek, taking care of a parent 24 hours a day, 7 days a week is the equivalent of working 4 full-time jobs at once. Giving the caregiving child regular breaks and periods of respite are key to keeping the caregiving child healthy and free of burnout. One way to provide time off is to access other sources to help pay for home care during the child’s time off. Medicaid, under its home and community based waiver program, will provide some hours of home care that can alleviate the constant care burden on the child. The VA will also pay a pension to qualified veterans and surviving spouses of qualified veterans to help pay for some home care delivered by a third party. An elder law attorney can review benefits available to the parent and assist with overcoming any barriers to eligibility. Most elder law attorneys will also assist with applications for these benefits.
- Asset Protection. Medicaid “rewards” caregiving children in a couple of ways by providing certain safe harbors under its transfer rules. Ordinarily, a transfer from a parent to a child results in a penalty where Medicaid refuses to help the recipient for a period of time due to the gift, or transfer, made by the recipient. However, certain exceptions apply to these rules, especially for children who are caring for a parent. For example, a parent may transfer his or her home to a child if the child moves in with the parent and provides care to that parent for a period of two years that then keeps the parent out of an institution. Also, a parent who moves in with a child can purchase a life estate in the child’s home. As long as the parent continuously resides in the home for a period of one year, the funds provided for the purchase can be transferred to the child without penalty.
All of these options can have different tax, public benefits, and other results. It’s best to consult with an attorney to determine what makes the most sense in your particular situation. To assist in completing a plan for the caregiving child living with a parent, contact us today to schedule an appointment to review your options.
Jeff is Certified as an Elder Law Attorney (CELA) by the National Elder Law Foundation, a distinction held by only a handful of lawyers in Indiana. For almost 20 years, he has focused on elder law, estate planning, long-term care planning, Medicaid planning, Veterans Affairs benefits planning, special needs planning, guardianships, and estate administration.